House committee approves permanent Internet tax moratorium

A U.S. House of Representatives committee has approved a bill that would permanently extend a moratorium on broadband access and Internet-specific taxes that Congress has temporarily extended three times over the past 16 years.

The House Judiciary Committee's 30-4 vote Wednesday sends the bill to the full House for a vote. The bill would also have to pass the Senate before becoming law.

The bill, called the Permanent Internet Tax Freedom Act [PITFA], would also remove past exemptions for seven states, including Texas and Ohio, that had Internet taxes in place before the moratorium first passed in 1998.

A permanent tax moratorium on Internet-only taxes will allow the Internet to continue to drive the U.S. economy and serve "as the greatest gateway to knowledge and engine of self improvement that has ever existed," said Representative Bob Goodlatte, a Virginia Republican and committee chairman.

The current Internet tax moratorium expires Nov. 1. "If the moratorium is not renewed, the potential tax burden on consumers will be substantial," with access tax rates that would likely exceed 10 percent, Goodlatte said.

Several committee Democrats backed an amendment that would again temporarily extend the tax moratorium, for four years, and would continue to allow the grandfathered states to collect taxes on Internet service. The committee rejected the amendment from Representative John Conyers Jr., a Michigan Democrat.

The initial reason for the tax moratorium, to allow a fledgling e-commerce industry to grow, no longer applies, Conyers said. The original Internet tax bill "was intended to be a temporary moratorium to nurture the Internet in its infancy," he said. "Today's Internet is very different from the Internet of 1998. The Internet is no longer a nascent idea in need of a federal tax protection to grow."

A permanent tax moratorium would also infringe on states' rights to decide what taxes to collect, some Democrats argued. And removing the grandfather clause from the seven states allowed to collect Internet taxes would take millions of dollars away from their budgets, they said.

States should be allowed to weigh the benefits and liabilities of Internet access taxes, said Representative Jerrold Nadler, a New York Democrat. "Why should we in Washington come in and tell them, 'you cannot make that decision?'"

Conyers urged the committee to move forward on a Senate bill, passed in May 2013, allowing states to collect sales taxes on Internet sales. The tax moratorium bill would not prohibit Congress from passing the controversial sales tax legislation.

The grandfathered states have had time to adjust their budgets in anticipation of a permanent moratorium, Goodlatte said. "It has been 16 years, time enough to change their tax codes," he said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.

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